Perth tipped by industry leaders to defy national property downturn

Industry leaders in Western Australia’s property sector have boldly predicted that house values will continue to increase in the face of falling prices elsewhere, persistent building supply issues and international economic and geopolitical headwinds.

Driven by population growth, strong economic fundamentals and limited supply, as well as ongoing affordability, the greenfield land market and detached housing market were singled out as having the best prospects by REIWA CEO Cath Hart, David Cresp, Director of Urbis, and Colin Keane, Director, Research4.

Activity was expected to remain above pre-Covid levels despite a broad moderation in demand driven by increasing consumer cautiousnes, rising interest rates and inflation, and handbrakes on new supply delivery (driven by elevated construction costs and labour shortages).

There was, however, a general expectation that activity in the new residential apartment market would remain subdued over the year ahead, with new supply slowing and apartment price growth remaining muted.

Ms Hart said WA was experiencing a housing and labour shortage at the same time.

“For the whole industry, the whole housing continuum, we have low stock levels in the established market, both for sale and for rent, and build times for the new homes market are significantly extended.

“For as long as they remain an issue, we expect competition among buyers will remain high and prices will likely continue to grow,” she told the UDIA WA Industry Lunch, Perth Property Prophesy, which API Magazine attended.

Interest rates were also more of an issue for more highly priced capital city markets, she said, pointing out that Melbourne and Sydney property prices corrected as soon as interest rates began their upwards move in May while Perth prices continue to increase.

“I have a very optimistic view about the resilience of the WA market and the resilience of WA mortgage holders, in that the rate rises this year have seen an increase of $370 per month on the average mortgage in Perth compared to a $640 increase on the average mortgage in Sydney.”

Strong credentials

WA is enjoying an especially strong labour market with very low unemployment (3.2 per cent), however certain highlighted property market metrics are pointing to a general market activity moderation, including new dwelling approvals (down 8 per cent year-on-year) and monthly land sales in July down 19 per cent on June.

The return to a normalised level of population growth, including from new arrivals from overseas, will be a critically important to the forward demand profile for WA’s new housing market.

The latest ABS data on permanent arrivals to Australia shows a very positive direction in this regard, with 26,340 new arrivals recorded in the June quarter 2022 and 23,730 arrivals in the March quarter - both at levels above the pre-Covid period of around 22,000.

Perth’s median established house price grew 4 per cent to $535,000 across the 12 months to the end of May 2022, which reflects a 38 per cent discount on the weighted average of the combined capital cities of $867,000.

The other capital cities recorded far stronger median price growth across the 12 months to May, led by Canberra (26 per cent to $975,000), Brisbane (24 per cent to $740,000), Sydney (20 per cent to $1.38m) and Adelaide (20 per cent to $600,000).

Perth’s median price for newly built houses in May was $525,000, increasing by 1 per cent across the month and by 5 per cent since May 2021.

The annual volume of new house sales totalled 13,647 in Perth across the 12 months to May 2022, which reflected a 6 per cent annual uplift, while the volume of newly built unit sales was 2,196 (down 14 per cent year-on-year).

Mr Cresp said Perth was likely to overcome rising inflation, interest rates and builder supply and labour issues to deliver further property price growth.

“We're in an interesting environment, with inflation and interest rates going up, property prices are a lot cheaper than the eastern states and we've got a number of world issues, not the least of which is Russia and Ukraine.”

He dispelled the idea that interest by necessity would drive down prices.

“There were periods in history when prices rose as interest rates rose,” he said, adding that the RBA’s interest rate would likely end the year under 3 per cent.

“We think the interest rate increases will happen before the back end of this year, with the RBA not going to want to ruin Christmas and make December interest rate rises, and by then they will probably will have done enough to start damping inflation.”

The annual volume of new house sales totalled 13,647 in Perth across the 12 months to May 2022 which reflected a 6 per cent annual uplift, while the volume of newly built unit sales was 2,196 (down 14 per cent).

Greenfield market

The volume of vacant land settlements across Greater Perth and Peel (to the south of the metropolitan area) totalled 7,171 for the 12 months to April 2022, which reflected a halving (down 54 per cent) in total vacant land settlements recorded in the previous 12 months.

The median price in vacant land settlements across Perth and Peel totalled $285,000 for April, reflecting a 20 per cent growth on April settlements and 19 per cent uplift on 12 months prior.

Researcher Colin Keane said the last two years have been influenced by factors that are non-local.

“They've been impacted by factors from at a global level but we have now exited that phase.

“And as the greenfield market is now going back to its new normal, that new normal is much better than pre-pandemic.

“You have higher levels of demand by 30 to 40 per cent for land, and you have still record low prices on Perth land, therefore they should not really go backwards, they should go forward.

“So, there is a strong opportunity for the Perth market to leverage those attributes and see a very relatively successful next two years.”

Mr Keane forecast further price growth for Perth greenfield sites.

“In 2021-22 financial year there was 5 per cent annualised growth but you've got to remember that Perth land prices for the preceding five, six years have done very little.

“But what we're forecasting conservatively is that Perth should be averaging around 3 per cent per annum price growth.”